On Thursday, a stockholder filed a complaint in the Southern District of New York against MagnaChip Semiconductor Corporation and its Board of Directors for alleged securities violations relating to the proposed sale of the company to a private equity company.
According to the complaint, the instant action arises from the defendants’ efforts to sell MagnaChip to “Southern Dearborn Limited (‘Parent’), and Michigan Merger Sub, Inc. (‘Merger Sub,’ and collectively with Parent ‘Wise Road’) as a result of an unfair process for an unfair price and to enjoin an upcoming stockholder vote on a proposed all cash transaction acquiring all of the Company’s remaining outstanding shares, valued at approximately $1.4 billion (the ‘Proposed Transaction’).”
The plaintiff noted that on March 26, 2021, the defendants filed their Form 8-K along with their Merger Agreement with the Securities and Exchange Commission (SEC). Pursuant to the terms of the agreement, “Parent, a company which is controlled by Wise Road Capital, will acquire all of the remaining outstanding shares of MagnaChip’s common stock at a price of $29.00 per share in cash. As a result, MagnaChip will become an indirect wholly-owned subsidiary of Wise Road.”
The plaintiff stated that on April 19, 2021, MagnaChip filed a Proxy Statement with the SEC in support of the transaction. The plaintiff alleged that the transaction “is unfair and undervalued.” In particular, the plaintiff contended that the Proxy Statement details an inadequate process “in which the Board inefficiently conducted the sales process of the Company, including selling a portion of the Company prior to entering into negotiations for a sale process of the Company, including selling a portion of the Company prior to entering into negotiations for a sale of the rest of the Company, and not creating a disinterested committee of directors to run the sales process until it had already been going on for several months.”
The complaint argued that, by approving the deal, the Board breached their fiduciary duties of loyalty, good faith, due care, and disclosure by: “(i) agreeing to sell MagnaChip without first taking steps to ensure that Plaintiff as a public stockholder of MagnaChip would obtain adequate, fair and maximum consideration under the circumstances; and (ii) engineering the Proposed Transaction to benefit themselves and/or Wise Road without regard for MagnaChip’s public stockholders, including Plaintiff.” Moreover, the plaintiff alleged that the individual defendants sought gains and benefits for themselves.
Furthermore, the plaintiff averred that the proxy statement is materially deficient and does not provide the plaintiff or other stockholders with adequate information needed for the shareholder vote. The statement is purportedly false in connection to: “(a) the sales process and in particular certain conflicts of interest for management; (b) the financial projections for MagnaChip, provided by MagnaChip to the Company’s financial advisor J.P. Morgan Securities LLC (‘J.P. Morgan’); and (c) the data and inputs underlying the financial valuation analyses, if any, that purport to support the fairness opinions created by J.P. Morgan and provides to the Company and the Board.” The plaintiff proffered that as a result of these failures the plaintiff and other stockholders have been harmed.
The defendants are accused of violating Sections 14(a) and 20(a) of the Securities and Exchange Act of 1934 and for breaching their fiduciary duty as well as aiding and abetting the Board’s breaches of fiduciary duty.
The plaintiff seeks injunctive relief to enjoin the transaction, or if the deal is consummated to rescind it and set it aside or award rescissory damages, declaratory judgment, an award for damages, costs and fees, and other relief.
The plaintiff is represented by Brodsky Smith.
